Pokarna Limited | |
Q1 FY23 Earnings Conference Call Transcript | |
August 17, 2022 | |
Moderator | Ladies and gentlemen, good day, and welcome to the Pokarna Limited Q1 FY |
'23 Earnings Conference Call. | |
Please note that this conference is being recorded. | |
I now hand the conference over to Mr. Gavin Desa from CDR India. Thank you, | |
and over to you, sir. | |
Gavin Desa | Thank you. Good day, everyone, and a warm welcome to Pokarna Limited's Q1 |
FY '23 Earnings Conference Call. We have with us today Mr. Gautam Chand | |
Jain, Chairman and Managing Director; and Mr. Paras Kumar Jain, Chief | |
Executive Officer, Pokarna Engineered Stone Limited. | |
I trust most of you have gone through the communication and the results mailed | |
to you earlier. In the interest of time, we would like to commence with Q&A | |
immediately. | |
So, I'd like to hand over to the moderator, Mike, to open the floor for Q&A. Over | |
to you, Mike. | |
Moderator | The first question from the line of Dixit Doshi from Whitestone Financial |
Advisors. | |
Dixit Doshi | My first question is regarding this recently, U.S. commerce came out with the |
preliminary duty notification in July. So, if you can elaborate on that. So now we | |
don't have to pay anything. And in that notification, the competitors were levied | |
166%. So, is it the final, now the competitors are paying this much duties or final | |
outcome will come in November or December? | |
Paras Jain | The Department of Commerce preliminarily announced the antidumping duty for |
Pokarna to be 0%. And this is subject to the final outcome, which is expected to | |
happen anytime between end of October and December. So, the duties are still | |
not final and subject to the final outcome by the DOC. So currently, our products | |
are subject to 2.67% as the cash deposits in which 0.33% is the antidumping | |
and 2.34% is the countervailing duty. | |
Dixit Doshi | Okay. And what about the competitors? So, from July to, let's say, by the time |
the final outcome come in December, how the competitors will have to pay? | |
Paras Jain | See basically, the duties are paid by the importer of record. So, it is not |
necessarily the supplier who pays it. It can also be the buyer who is going to pay |
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it. So, while the preliminary duties have been announced, they have not yet | |
come in force. They will come into force only after the final duties have been | |
announced and implemented. | |
Dixit Doshi | Okay. Now my second question is regarding the demand outlook. So, we had a |
very good quarter Q1, so how do you see the order booking for next two, three | |
quarters and demand scenario in the U.S? | |
Paras Jain | See, I think with the pandemic-related demand getting relatively behind and with |
the talks of recession and other challenges coming, so we don't see a bleak | |
quarter, but at the same time, we are very cautious about the future. So, at the | |
moment, we are very cautious as to how the demand will pan out. I think it will | |
take at least a couple of quarters to see how the demand is panning out. It's too | |
early to comment now. | |
Moderator | We have the next question from the line of Sonaal KohIi from Bowhead. |
Sonaal Kohli | I have two queries, firstly, assuming the antidumping duty goes through for the |
competitors, what kind of market share gains or strategy gains you could see if | |
any? And secondly, as far as the freight rates are concerned and the resin | |
prices, et cetera, are concerned When would you see the benefit of lower freight | |
prices and raw material prices for you? Third, you may allow, what are the levers | |
available to you to be able to sell whatever production you do over the next one, | |
one and a half years once everything stabilizes even if U.S. demand is a bit | |
weak considering our market share? | |
Paras Jain | Okay. So, coming to your first question as to what will Pokarna benefit from the |
spillover of demand arising out of the antidumping duties on certain participants | |
out of India. See basically, unless there is a complete clarity on as to how this is | |
going, it's difficult to comment. So, I think we'll be able to talk much about it only | |
once the final duties come through because there are, different price bracket at | |
which the competition operates. And those price bracket may not fully be | |
lucrative to us. | |
So, we'll have to see how we use that platform to leverage. So, I think probably | |
when we speak, maybe in the third quarter or maybe at the end of the calendar | |
year, we'll have more clarity as to whether the spillover will benefit us or not. | |
Now coming to the raw material prices, the raw material prices have recently | |
started not all the prices, raw material prices, but more specifically, the resin | |
prices seems to be now tapering down. So, we think that the entire benefit of | |
that would probably come in the third quarter when we see that the price could | |
stabilize. I think we'll have to wait till the third quarter for us to see the benefit of | |
the resin prices getting stabilized. | |
Moderator | We have the next question from the line of V.P. Rajesh from Banyan Capital |
Advisors. | |
V.P. Rajesh | Okay. If you can just comment on the capacity utilization in the June quarter? |
And then secondly, what is our debt number at the end of June, how much debt | |
have we paid down? | |
Paras Jain | So capacity utilization in Q1 has been better than the Q4 of last financial year. |
While the product mix continues to be what it was, but slightly there has been | |
an improvement in the capacity utilization. We believe that as we progress and | |
once we have more clarity on the demand outlook for arising out of the economic |
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indicators or from the DOC, we'll be able to ramp up the capacity. We have a | |
little cushion in the capacity to go up further. That answers your first question | |
typically. Now on the debt side, you're looking at the term loan side or working | |
capital? | |
V.P. Rajesh | Total debt, I think you had indicated last time that you'll pay down Rs.100 crore |
in this year. So, I was just wondering if that process started in this June quarter. | |
Gautam Chand Jain | So the consolidated debt is Rs.516 crore, which includes Granite and also the |
Quartz divisions. | |
Paras Jain | Including both the term loan and the working capital. |
V.P. Rajesh | Okay. And just a quick question on the capacity utilization. Last time, you gave |
the numbers. So, if you can just share the numbers, if that's possible? | |
Paras Jain | I can only say that capacity utilization has improved than the past. So, I think if |
you could excuse me on the numbers. Thank you. | |
Moderator | We have the next question from the line of Vikram Sharma from Niveshaay |
Investment Advisors. | |
Vikram Sharma | So I had a query related to what was the product mix in the current quarter, basic |
product and premium products? And what is our outlook on generalized EBITDA | |
margin going ahead? | |
Paras Jain | See, basically the product mix in this quarter was relatively better than what we |
had in the fourth quarter but it is still not at the level where we want it to be. So, | |
it's going to take some time for the product mix to stabilize. And that's again | |
correlated with the demand scenario. So that answers your first question. | |
Coming to the second question on the EBITDA margin. See, basically, our target | |
at the moment is to come to an EBITDA level of 30%. And once we have a little | |
stabilization at the resin cost, we believe that, that number is possible to achieve. | |
Vikram Sharma | And, what is the demand outlook in U.S. market? Is there any challenge in order |
book? | |
Paras Jain | So I just answered at the beginning of this call that we are closely watching the |
demand scenario in both kitchen and bath industry in the U.S. with the talk of | |
recessions and that's another economic indicator not being so lucrative for any | |
other business as well. So I think we'll give a better clarity on the demand outlook | |
probably in the third quarter because that will give us a lot more indicators as to | |
how things are panning out, how the inventory position is in the U.S. and how | |
the US Department of Commerce investigation actually spills over some | |
demand. | |
Moderator | We have the next question from the line of Pritesh Chheda from Lucky |
Investment Managers. | |
Pritesh Chheda | Sir, I missed your comment on when will you start seeing benefit of resin and |
freight cost prices lower? And what is your debt repayment scheduled for current | |
year and next year? | |
Paras Jain | Okay. So resin prices are cooling down, we think that the benefit will start coming |
in from the third quarter completely because there are certain contracts, which | |
have extended pricing for the raw material. And the freight cost has come down, |
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but it has still not come down significantly. And so, I think more than the shipping | |
costs, we are more eager to look at the benefits from the resin price stabilization. | |
Gautam Chand Jain | Regarding the debt payments, we have a schedule from the banks and debt will |
start falling more from next year. But this year, maybe we'll pay about Rs.10 | |
crore to Rs.15 crore what is due to pay during this year, financial year. | |
Pritesh Chheda | Okay. And how much of our material is FOB? |
Paras Jain | The large component of our business is FOB. |
Pritesh Chheda | Okay. Large component is FOB. Okay. And have you firmed up on any |
expansion plan? | |
Paras Jain | As a business, we keep looking at the opportunities as they keep coming. So, |
while they have not firmed up any business plan for expansion at the moment, | |
but we keep looking at the options. And I think when we believe that it requires | |
a serious consideration, we'll take it for the appropriate approvals internally and | |
then inform the exchanges. | |
Pritesh Chheda | Any movement in Quartz price? |
Paras Jain | Basically, as the trend with the raw materials has always been at least in the |
recent past on the higher side. So, there is a little firm up on the pricing because | |
of general increase in the cost of doing business. | |
Pritesh Chheda | Okay. And lastly, you were targeting 100% utilization by year-end? Will you be |
able to achieve it? | |
Paras Jain | See I don't know if we ever said 100%. We always believe that optimum capacity |
is about 85%. So, if the demand scenario continues to be positive, I think 85% | |
is achievable. | |
Pritesh Chheda | That's Rs.900 crore to Rs.1,000 crore revenue, right? |
Paras Jain | I'll let you do that mathematics. |
Moderator | We have the next question from the line of Rupesh Tatiya from Intelsense |
Capital. | |
Rupesh Tatiya | Okay. Sir, at the end of Q4, I think our finished goods inventory position was |
Rs.85 crore, Rs.86 crore. What would that position be by end of Q1? | |
Paras Jain | So there is a little change from Rs. 85 crore, it is about Rs. 81 crore. |
Rupesh Tatiya | Yes. Is there a one-off in this quarter? I mean that -- is that shipping lines got |
better and some inventory in the channel got cleared. Is there a one-off in Q1 | |
number? | |
Gautam Chand Jain | Are you talking about the consolidated inventory of Granite and Quartz? |
Rupesh Tatiya | Yes, yes, sir. That's consolidated levels, yes. |
Rupesh Tatiya | Okay. So, there is no one-off, right, in the Q1 number that inventory in China got |
consumed, there is no one-off? |
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Paras Jain | No. See, basically, as per the policies, what we have in place with regard to the |
inventory valuation, we consistently use those policies. So we have not reported | |
any exceptional item there. | |
Rupesh Tatiya | No, In terms of sales, I was asking, sir. |
Rupesh Tatiya | Sir, was there inventory in that channel. Generally, let's say, we consume maybe |
x inventory in channel every quarter? Was it that 10%, 20% of inventory in | |
channel got cleared and got sold to consumer and now it is being shown as | |
revenue? That is the question. | |
Paras Jain | See basically, we don't do that type of accounting. Our accounting is typically |
when the risks and rewards are transferred. That is predominantly when the | |
goods are delivered at the port. So, we don't account for based on the sales, | |
which our consumers do. So, there's no consignment sales from our side. So, | |
whatever we have recorded is when the risk and reward are transferred when | |
the container is delivered at the port. | |
Rupesh Tatiya | Okay. Okay. And my second question, sir, is it has Hyderabad unit reached the |
EBITDA margin level of Vizag unit? | |
Paras Jain | Not yet. It will take some time because the product mix has still not reached to |
the level of Vizag. | |
Rupesh Tatiya | Okay. And what is the contribution of the newer products because there is newer |
capability? | |
Paras Jain | As we have maintained in the past also that currently, the products with higher |
capabilities have still not been commercialized in Hyderabad plant because it | |
takes certain time for products to be developed, people to be trained and | |
products to marketed. So, we are still not seeing the products from the | |
investments, which we have made in Unit 2. So, I think another couple of | |
quarters by the time we start developing those products, and of course, we have | |
developed and we have now started marketing it. So, it will take at least a couple | |
of quarters for the products to get acceptance and the manufacturing to start. | |
Moderator | We have the next question from the line of Mr. Sachin Kasera from Svan |
Investments. | |
Sachin Kasera | Just wanted to get, check, if you can give us some update on how is the |
domestic business shaping up? | |
Paras Jain | Yes. So domestic business is growing for us. But of course, as a part of our |
entire portfolio, it is still a very small number. But the year-on-year growth is | |
promising, and we've been able to add about 100-plus dealers across India now. | |
So our product is available for display and consumers can walk in, touch and | |
feel the product and can also order via our dealer channel. So, I think it will take | |
some time to become a sizable component in the business. But I think the | |
demand and the channel development exercise what we are doing here looks | |
very promising to us in the long term. | |
Sachin Kasera | So sir, just a follow-up on this. So one is that, when we can expect some good |
numbers from this? Secondly, what is the type of feedback you are getting from | |
consumers? And are we also starting to look at the project side of this business? |
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Pokarna Ltd. published this content on 24 August 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 24 August 2022 12:07:07 UTC.